Hardest-hit states get more mortgage aid funds

Published 4:00 am, Thursday, August 12, 2010

The U.S. Treasury Department said Wednesday that it is sending an additional $2 billion to what it calls the 17 "hardest hit" states to help unemployed homeowners pay their mortgages.

California, which was previously awarded $700 million from the Hardest Hit Fund but has not yet begun to spend it, will get an additional $476 million.

The $2 billion is coming from the Troubled Assets Relief Program, specifically the $50 billion made available for mortgage modifications under the Making Home Affordable program, Treasury spokeswoman Andrea Risotto says.

The shift in funding reflects the fact that the housing problem "has gone from a crisis of people with subprime mortgages to a crisis where a lot of middle-income people are suffering because of unemployment," Risotto says.

President Obama established the Hardest Hit Fund in February to help homeowners in states with the worst housing or job markets.

In June, the fund awarded a total of $1.5 billion to five states including California where the average home price had fallen at least 20 percent. In August it awarded a total of $600 million to five other states with high unemployment rates.

That money was funneled through state housing agencies, which could design a variety of foreclosure-prevention programs tailored to their markets. By contrast, the $2 billion announced Wednesday can only be used to subsidize mortgage payments for "the unemployed or underemployed."

Of the original 10 hardest-hit states, all except Arizona will receive the additional funds earmarked for unemployment programs. Eight new states plus the District of Columbia will also get these funds.

Allocations were based on states' unemployment rates, weighted by their populations. For details see links.sfgate.com/ZKCW.

California's plan

It can add the new $476 million to its existing Unemployment Mortgage Assistance Program or come up with a different one for the job-challenged. It has not decided which it will do, says CalHFA spokeswoman Evan Gerberding.

CalHFA's existing program for the unemployed provides a monthly mortgage subsidy equal to the lesser of $1,500 or half of the payment (including principal, interest, taxes, insurance and homeowner's association dues) for up to six months.

To qualify, borrowers must be eligible for unemployment insurance, be in default or close to it, make no more than 120 percent of the median income for their county, use the home as their primary residence and meet other requirements. The loan, at the outset, must have been less than $729,750. Borrowers might be ineligible if they refinanced the original loan and took cash out. In most cases the assistance will be structured as a loan that is forgivable over three years.

Originally, CalHFA thought this program would help about 9,000 unemployed borrowers. With the new funding, "we think we could help an additional 33,000," says Gerberding.

CalHFA's other three hardest-hit programs are for homeowners who have fallen behind on their payments, have severe negative equity, or can't afford their homes and need help transitioning to something else.

The agency will begin taking applications for the first four programs by Nov. 1. For details, talk to your loan servicer and see links.sfgate.com/ZKBE.

Lesser-hit states

What about unemployed homeowners in the other 33 states? They could get help from a separate $1 billion program being developed by the U.S. Department of Housing and Urban Development.

I wrote about this program, which was buried in the recently enacted financial regulation bill, in my July 29 column, available at www.sfgate.com/ZKCX.

Under HUD's Emergency Mortgage Relief Program, homeowners who can't pay their mortgage because of involuntary unemployment, underemployment or medical problems and who are at least three months delinquent can get federal loans to pay their mortgages. The maximum is $50,000 over two years. These loans might be forgivable.

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Although this was intended to be a national program, it will mainly be available in certain distressed communities outside the 17 hardest-hit states.

HUD's new program "will build on Treasury's Hardest Hit initiative by targeting assistance to struggling unemployed homeowners in other hard hit areas to help them avoid preventable foreclosures," Bill Apgar, HUD senior adviser for mortgage finance, said in a press release.

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